<PAGE>
________________________________________________________________________________
1
DEAR SHAREHOLDERS:
We are pleased to provide this report for CIGNA High Income Shares (the "Fund"),
covering the six months ended June 30, 2000.
HIGH YIELD MARKET
The fixed income markets outperformed stocks for the quarter and year-to-date
(Lehman Brothers Aggregate Bond Index returns of +1.74% and +3.99%,
respectively, versus the Wilshire 5000 Stock Index returns of -4.74% and
-1.41%). High yield bonds performed better in the June quarter than in the March
quarter, but still lagged other sectors of the fixed income market. High yield
bond returns, as measured by the Lehman Brothers High Yield Bond Index (the
"Index") were +1.15% for the quarter and -1.21% year-to-date. These returns were
below the performance of investment grade corporates (+1.23% for the quarter,
+2.68% for the year-to-date) and Treasuries (+1.52% for the quarter and +5.37%
for the six months). Ten year Treasury yields were unchanged during the period
at about 6.00%. However, yields on high yield bonds rose about 35 basis points
to around 12.30%. Single B rated bond quality spreads widened 165 basis points
during the first half and are now at a spread of 625 basis points, the widest
level since 1998's summer financial crisis.
The high yield bond market continues to suffer from rising interest rates,
higher default rates and weak demand conditions. The Federal Reserve ("Fed") has
increased interest rates six times since May 1999 (1.75%), in an effort to slow
down the economy, making it difficult to generate investor interest in fixed
income assets. Bond rating downgrades have outpaced upgrades since late 1998 and
domestic high yield bond default rates have now risen to 4.1% on a
latest-twelve-month basis. This level of defaults, the highest in several years,
has heightened credit concerns amongst investors. The rise in defaults can be
attributed to the tremendous volume of new issues in 1997-98. Several of these
issues appear to be running into problems due to poor management and adverse
business developments.
Finally, demand for high yield remained low. Mutual funds experienced $4.3
billion in outflows in the first half, compared to $5.6 billion in inflows
during 1999's first half. Weaker demand resulted in a lower volume of new
issuance, approximately $30 billion so far in 2000, about one-half the volume of
1999's first half.
STRATEGY
Portfolio strategy in the second quarter centered on utilizing current market
themes in combination with our classic high yield credit strategy. One such
theme, "market trading illiquidity", led us to: add to well-capitalized credits
which have large size issues outstanding, purchase two short duration issues,
and sell smaller sized issues. New positions were established in the telecom
sector, reflecting another theme of investing in mature companies with
managements that have proven they can execute on their business plans. We also
added two new leveraged buy-out situations which met our classic high yield
credit theme. We sold several distressed issues where the recovery potential was
limited. We continued to reduce our overweight position in emerging market
corporates due to the high volatility in that sector.
We kept our industry sector overweights in gaming and entertainment, consumer
products, technology and transportation due to the attractive fundamentals in
those areas. Conversely, we underweighted energy, basic industries, retailers,
healthcare, media and utilities. Also, we kept our
<PAGE>
________________________________________________________________________________
2
overweight in middle tier credits (Single-Bs) in place at 73% versus a market
weighting of 56%.
The Fund remains broadly diversified and was invested in the issues of 122
companies at quarter-end. The top three industry categories as a percentage of
net assets were: telecommunications (22.8%), entertainment (11.6%) and
containers and paper (10.6%).
The Fund's average maturity was kept at about 7.3 years and the average quality
was maintained at Single B. The Fund's leverage during the quarter remained
below 33% of assets and was 28% at quarter-end.
PERFORMANCE
CIGNA High Income Shares had disappointing performance in the second quarter and
first half of 2000. Based on net asset value, the Fund's total returns were
-2.29% and -4.27%, respectively, for the quarter and six months. These returns
compared unfavorably to the Index. The Fund's weak performance relative to its
benchmark was due to credit specific problems during the quarter. The biggest
impact was the swift bankruptcy filing of Kitty Hawk, an air cargo
transportation company, which cost the Fund about 70 basis points in
performance. Substantial price declines in some of the Fund's emerging market
corporate bond holdings due to adverse business developments also had a negative
impact. These losses were only partially offset by gains in Verio, which agreed
to be acquired by NTT Communications, Allied Waste, United Rentals and certain
telecom holdings. Returns for the quarter and year-to-date based on the market
value of the Fund's shares traded over the New York Stock Exchange were 6.97%
and 13.17%, respectively.
In response to several defaults in its portfolio and the increased cost of
borrowing, the Fund's monthly dividend was reduced in August to 5.75 cents from
6 cents per share. More information on the rate change may be found on page 12.
OUTLOOK
The outlook for the high yield market is cloudy. The asset class is currently
cheap on a historical valuation basis, but has been attractively valued for some
time now. Near-term performance will be driven by Federal Reserve policy,
default trends, and market technical conditions. Recent economic data have shown
the economy is beginning to slow. If this trend continues, the Fed may end its
tight monetary policy, which would be a big boost to the high yield and fixed
income markets. Default rates are expected to remain high over the near term as
the 1997-98 surge in new issues seasons further and the weaker companies are
washed out. Improvement in the market's technical condition is needed, through
the reversal of mutual fund outflows and renewed buying by other investors,
before the market can improve. However, neither the timing nor the catalyst to
get the market moving forward again can be predicted with certainty at this
time.
Sincerely,
/s/ Richard H. Forde
Richard H. Forde
CHAIRMAN OF THE BOARD AND PRESIDENT
CIGNA HIGH INCOME SHARES
<PAGE>
________________________________________________________________________________
CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES June 30, 2000 (Unaudited) 3
(Continued)
MARKET
PRINCIPAL VALUE
(000) (000)
-------------------------------------------------------------------
BONDS AND NOTES - 135.2%
AEROSPACE AND DEFENSE - 3.2%
BE Aerospace, Inc.,
9.875%, 2006 $ 4,000 $ 3,780
9.5%, 2008 500 460
Hexcel Corp., 9.75%, 2009 5,050 4,595
-------------
8,835
-------------
AUTO AND TRUCK - 2.4%
Collins & Aikman Products Co.,
11.5%, 2006 3,000 2,955
Tenneco Automotive, Inc.,
11.625%, 2009 4,000 3,550
-------------
6,505
-------------
BROADCASTING AND MEDIA - 5.2%
American Lawyer Media, Inc.,
9.75%, 2007 4,500 4,084
Echostar DBS Corp., 9.375%, 2009 3,100 2,992
nnova S DE R.L., 12.875%, 2007 4,600 4,278
Lodgenet Entertainment Corp.,
10.25%, 2006 3,000 2,902
-------------
14,256
-------------
CABLE TV - 6.5%
Cablevision S.A., 13.75%, 2007
(144A security acquired Mar. 2000
for $3,460)** 3,500 3,255
Charter Communications, Inc.,
10.25%, 2010 5,000 4,825
International Cabletel, Inc.,
12.75%, 2005*** 2,750 2,812
Multicanal, S.A.,
13.125%, 2009 Series E 2,450 2,315
United Pan Europe Communications N.V.
11.25%, 2010
5,500 4,771
-------------
17,978
-------------
CHEMICALS - 2.4%
Brunner Mond Group PLC,
11%, 2008 3,000 1,350
Great Lakes Carbon Corp.,
10.25%, 2008 1,350 1,080
Huntsman ICI Chemicals, Inc.,
10.125%, 2009 4,000 4,020
-------------
6,450
-------------
CONSUMER PRODUCTS AND SERVICES - 6.2%
Carson, Inc., 10.375%, 2007 3,250 3,445
Desa International, Inc., 9.875%, 2007 2,750 2,200
Drypers Corp., 10.25%, 2007 4,000 2,640
Jostens, Inc., 12.75%, 2010 3,350 3,316
MARKET
PRINCIPAL VALUE
(000) (000)
-------------------------------------------------------------------
CONSUMER PRODUCTS AND SERVICES - (CONTINUED)
Samsonite Corp., 10.75%, 2008 $ 4,350 $ 3,621
United Industries Corp.,
9.875%, 2009 3,050 1,830
-------------
17,052
-------------
CONTAINERS AND PAPER - 10.6%
Gaylord Container Corp.,
9.875%, 2008 6,000 3,900
Huntsman Packaging Corp.,
13%, 2010 3,700 3,700
Indah Kiat Finance Mauritius Ltd.,
10%, 2007 8,000 4,800
Packaging Corp., 9.625%, 2009 5,000 4,950
Pindo Deli Finance Mauritius Ltd.,
10.75%, 2007 4,800 2,880
Riverwood International Corp.,
10.625%, 2007 4,000 3,880
10.875%, 2008 2,000 1,740
Tjiwi Kimia Finance Mauritius Ltd.,
10%, 2004 4,950 3,218
-------------
29,068
-------------
ELECTRONICS AND ELECTRICAL EQUIPMENT - 9.2%
Amkor Technology, Inc.,
9.25%, 2006 1,500 1,479
10.5%, 2009 4,400 4,389
Dictaphone Corp., 11.75%, 2005 2,465 2,490
Fairchild Semiconductor Corp.,
10.125%, 2007 2,625 2,625
10.375%, 2007 2,500 2,525
International Wire Group, Inc.,
11.75%, 2005, 5,300 5,326
Viasystems, Inc.,
9.75%, 2007 5,500 4,785
9.75%, 2007, Series B 2,000 1,740
-------------
25,359
-------------
ENTERTAINMENT - 11.6%
American Skiing Co., 12%, 2006 5,250 4,463
Booth Creek Ski Holdings, Inc.,
12.5%, 2007 4,250 2,975
Casino Magic of Louisiana Corp.,
13%, 2003 4,750 5,059
Hollywood Park, Inc., 9.25%, 2007 4,075 4,055
Isle Capri Casinos, Inc., 8.75%, 2009 3,650 3,367
Premier Parks, Inc., 9.75%, 2007 3,500 3,369
SFX Entertainment, Inc.,
9.125%, 2008 1,500 1,511
9.125%, 2008 3,000 3,030
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
________________________________________________________________________________
CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES June 30, 2000 (Unaudited) 4
(Continued)
MARKET
PRINCIPAL VALUE
(000) (000)
-------------------------------------------------------------------
ENTERTAINMENT - (CONTINUED)
Station Casinos, Inc.,
10.125%, 2006 $ 1,000 $ 1,005
9.875%, 2010 (144A security
acquired June 2000 for $2,988)** 3,000 3,008
-------------
31,842
-------------
FINANCIAL - 3.0%
Dollar Financial Group, Inc.,
10.875%, 2006 4,150 4,025
Labranche & Co., Inc., 12%, 2007
(144A security acquired Feb. 2000
for $4,093)** 4,150 4,119
-------------
8,144
-------------
FOOD AND BEVERAGES - 9.6%
Agrilink Foods, Inc., 11.875%, 2008 4,000 3,200
Chiquita Brands International, Inc.,
10.25%, 2006 2,895 2,359
9.625%, 2004 1,240 1,004
Di Giorgio Corp., 10%, 2007 4,000 3,520
Fleming Cos., Inc.,
10.625%, 2001 4,500 4,438
Grupo Azucarero Mexico S.A.,
11.5%, 2005+ 2,175 816
Imperial Holly Corp., 9.75%, 2007 5,000 1,000
Mastellone Hermonos S.A.,
11.75%, 2008 3,250 2,470
Premier International Foods PLC,
12%, 2009 (144A security acquired
Aug. 1999 for $4,500)** 4,500 4,005
Stater Brothers Holdings, Inc.,
10.75%, 2006 4,100 3,608
-------------
26,420
-------------
HEALTH CARE - 1.3%
Express Scripts, Inc., 9.625%, 2009 3,000 2,925
Mediq, Inc., 11%, 2008+ 6,500 650
-------------
3,575
-------------
INDUSTRIAL - 8.0%
Blount, Inc., 13%, 2009 5,150 5,253
Foamex Capital Corp., 13.5%, 2005 5,500 4,702
Goss Graphics Systems, Inc.,
12.25%, 2005 2,454 834
Grove Worldwide L.L.C.,
9.25%, 2008 4,400 1,628
High Voltage Energy Corp.,
10.5%, 2004 2,000 1,430
ICF International Inc., 13%, 2003***+ 5,000 2,250
MARKET
PRINCIPAL VALUE
(000) (000)
-------------------------------------------------------------------
INDUSTRIAL - (CONTINUED)
Neenah Corp.,
11.125%, 2007, Series B $ 2,650 $ 2,028
11.125%, 2007, Series E (144A
security acquired Nov. 1998 for
$1,553)** 1,500 1,148
Outsourcing Services Group, Inc.,
10.875%, 2006 3,500 2,800
-------------
22,073
-------------
METALS - 2.5%
Doe Run Resource Corp.,
11.25%, 2005 4,000 1,618
Gulf States Steel, Inc., 13.5%, 2003+ 3,765 320
Renco Steel Holdings, Inc.,
10.875%, 2005 5,850 4,797
-------------
6,735
-------------
MISCELLANEOUS - 8.9% AES Corp.,
9.5%, 2009 3,900 3,822
Allied Waste North America, Inc.,
10%, 2009 6,500 5,427
Buhrmann U.S., Inc., 12.25%, 2009 4,800 4,968
Sullivan Graphics, Inc., 12.75%, 2005 5,500 5,582
United Rentals, Inc.,
9%, 2009 3,750 3,319
9.25%, 2009 1,350 1,215
-------------
24,333
-------------
RETAIL - 1.3%
Jo Ann Stores, Inc., 10.375%, 2007 4,000 3,600
-------------
TECHNOLOGY - 5.7%
Exodus Communications, Inc.,
11.25%, 2008 4,800 4,752
10.75%, 2009 500 482
Orbital Imaging Corp., 11.625%, 2005 4,250 1,944
PSI Net, Inc.,
10.5%, 2006 2,360 2,230
11%, 2009 3,490 3,246
Verio, Inc., 11.25%, 2008 2,765 3,104
-------------
15,758
-------------
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
________________________________________________________________________________
CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES June 30, 2000 (Unaudited) 5
(Continued)
MARKET
PRINCIPAL VALUE
(000) (000)
-------------------------------------------------------------------
TELECOMMUNICATIONS - 22.8%
Alestra S DE R.L., 12.125%, 2006 $ 6,000 $ 5,520
Caprock Communications Corp.,
12%, 2008 3,430 3,190
11.5%, 2009 1,000 910
Dobson Communications Corp.,
10.875%, 2010 (144A security acquired
June 2000 for $2,977)** 3,000 3,008
Energis PLC, 9.75%, 2009 2,500 2,450
Global Crossing Holdings Ltd.,
9.125%, 2006 1,850 1,776
Hyperion Telecommunications, Inc.,
12.%, 2007 5,920 5,506
KMC Telecom Holdings, Inc.,
13.5%, 2009 3,400 2,992
Nextlink Communications, Inc.,
10.75%, 2008 1,500 1,477
10.5%, 2009 2,450 2,401
Poland Telecom Finance B.V.,
14%, 2007 3,000 450
Primus Telecommunications, Inc.,
11.75%, 2004 5,250 4,200
RSL Communications PLC,
12.25%, 2006 1,375 1,128
10.5%, 2008 4,750 3,420
Spectrasite Holdings, Inc.,
10.75%, 2010 (144A security acquired
Mar. 2000 for $4,087)** 4,200 4,189
Talton Holdings, Inc., 11%, 2007 2,800 2,380
Transtel Pass-Thru Trust,
12.5%, 2007 4,250 1,507
Versatel Telecom B.V.,
13.25%, 2008 5,550 5,661
Williams Communications, Inc.,
10.875%, 2009 6,000 5,880
World Access, Inc., 13.25%, 2008 5,200 4,550
-------------
62,595
-------------
TEXTILES - 2.7%
Cluett American Corp.,
10.125%, 2008 $ 5,000 $ 3,700
Delta Mills, Inc., 9.625%, 2007 2,750 2,090
Norton McNaughton, Inc.,
12.5%, 2005 3,000 2,550
-------------
8,340
-------------
TRANSPORTATION - 6.0%
American Commercial Lines L.L.C.,
10.25%, 2008 4,300 3,526
Atlas Air, Inc., 10.75%, 2005 5,885 5,944
Avis Rent A Car, Inc., 11%, 2009 4,725 4,914
-------------
14,384
-------------
MARKET
PRINCIPAL VALUE
(000) (000)
-------------------------------------------------------------------
WIRELESS COMMUNICATIONS - 7.6%
Centennial Cellular, Inc.,
10.75%, 2008 $ 2,835 $ 2,764
Crown Castle International Corp.,
9%, 2011 1,300 1,196
9.5%, 2011 700 665
10.75%, 2011 2,000 2,020
Grupo Isuacell S.A.,
14.25%, 2006 3,250 3,396
Metrocall, Inc., 9.75%, 2007 5,000 3,300
Winstar Communications, Inc.,
12.5%, 2008 (144A security acquired
March 2000 for $5,038)** 5,000 4,875
-------------
18,216
-------------
TOTAL BONDS AND NOTES (Cost - $440,434) 371,518
-------------
SHARES
(000)
------
COMMON STOCKS - 0.1%
Goss Graphic Systems Inc., Class B 64 129
World Access, Inc. 16 181
-------------
TOTAL STOCKS (Cost - $329) 310
-------------
WARRANTS - 1.4% Convergent Communications, Inc.,
Exp. 2008* 30 327
Orbital Imaging Corp., Exp. 2005* 4 85
Poland Telecom. Finance B.V.,
Exp. 2007* 3 -
Primus Telecommunications, Inc.,
Exp. 2004* 4 131
Versatel Telecom B.V., Exp 2008* 7 3,406
Wireless One, Inc., Exp. 2000* 15 -
-------------
TOTAL WARRANTS (Cost - $243) 3,949
-------------
TOTAL INVESTMENTS IN SECURITIES - 136.7%
(Total Cost - $441,006) 375,777
Liabilities, Less Cash and Other Assets - (36.7%) (100,971)
-------------
NET ASSETS - 100% $ 274,806
=============
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
________________________________________________________________________________
CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES June 30, 2000 (Unaudited) 6
(Continued)
--------------------------------------------------------------
PORTFOLIO COMPOSITION (UNAUDITED)
June 30, 2000
MARKET % OF
QUALITY RATINGS* OF VALUE MARKET
LONG-TERM BONDS (000) VALUE
--------------------------------------------------------------
Ba/BB $41,355 11.1%
B/B 286,277 77.1%
Below B 43,886 11.8%
------------ ------------
$371,518 100.0%
============ ============
*The higher of Moody's or Standard & Poor's Ratings.
--------------------------------------------------------------
* Non-income producing securities.
** Indicates restricted security; the aggregate fair value of restricted
securities is $27,605,875 (aggregate cost $28,696,371) which is
approximately 10% of net assets.
*** Variable rate security. Rate disclosed is as of June 30, 2000.
+ Defaulted securities.
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
________________________________________________________________________________
CIGNA HIGH INCOME SHARES 7
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
(IN THOUSANDS)
ASSETS:
Investments at market value
(Cost - $441,006) $ 375,777
Receivable for investments sold 9,933
Interest receivable 12,911
Investment for Trustees' deferred
compensation plan 305
------------
TOTAL ASSETS 398,926
------------
LIABILITIES:
Due to custodian 209
Payable for investments purchased 13,050
Loan payable 105,820
Dividend payable July 10, 2000 at
$0.06 per share 3,114
Accrued interest payable 1,351
Accrued advisory fees payable 190
Deferred Trustees' fees payable 305
Other accrued expenses (including $51
due to affiliate) 81
------------
TOTAL LIABILITIES 124,120
------------
NET ASSETS (Equivalent to $5.30 per share
based on 51,891 shares of beneficial
interest outstanding; unlimited number
of shares authorized) $ 274,806
============
COMPONENTS OF NET ASSETS:
Paid in capital $ 403,595
Undistributed net investment income 30
Unrealized depreciation of investments (65,229)
Accumulated net realized loss (63,590)
------------
NET ASSETS $ 274,806
============
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
(IN THOUSANDS)
INVESTMENT INCOME
INCOME:
Interest $24,666
EXPENSES:
Interest expense $4,107
Investment advisory fees 1,253
Administrative services 66
Shareholder reports 45
Custodian fees and expenses 44
Auditing and legal fees 28
Transfer agent fees and expenses 19
Trustees' fees 18
Other 30 5,610
-------- -----------
NET INVESTMENT INCOME 19,056
-----------
REALIZED AND UNREALIZED GAIN/LOSS ON
INVESTMENTS
Net realized loss from
investments (17,515)
Unrealized depreciation of investments (14,963)
-----------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS (32,478)
-----------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $(13,422)
===========
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
________________________________________________________________________________
CIGNA HIGH INCOME SHARES 8
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
(IN THOUSANDS)
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2000 1999
------------------ ------------------
OPERATIONS:
Net investment income $ 19,056 $ 41,408
Net realized loss from
investments (17,515) (40,375)
Unrealized appreciation
(depreciation)
on investments (14,963) 14,578
------------------ ------------------
Net increase (decrease) in net
assets from operation (13,422) 15,611
------------------ ------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ($0.375
per share and $0.82 per share,
respectively) (18,934) (42,033)
------------------ ------------------
Total distributions to
shareholders (18,934) (42,033)
------------------ ------------------
CAPITAL SHARE TRANSACTIONS:
Capital contribution by Adviser - 1,615
Net increase from 312 and
848 capital shares issued to
shareholders in reinvestment of
distributions, respectively 1,810 5,870
------------------ ------------------
Net increase from capital share
transactions 1,810 7,485
------------------ ------------------
NET DECREASE IN NET ASSETS (30,546) (18,937)
NET ASSETS:
Beginning of period 305,352 324,289
------------------ ------------------
End of period (including
undistributed and
(overdistributed) net
investment income of $30
and ($92), respectively) $ 274,806 $ 305,352
================== ==================
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
(IN THOUSANDS)
CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Cash provided by borrowing $ (135)
Dividends paid in cash (18,014)
--------------
Total amount used (18,149)
--------------
CASH PROVIDED (USED) BY OPERATIONS:
Purchases of portfolio securities (91,564)
Proceeds from sales of portfolio securities 86,306
--------------
Total amount used (5,258)
--------------
Net Investment Income 19,057
Net change in receivables/payables
related to operations 4,139
--------------
Total other amounts 23,196
--------------
NET DECREASE IN CASH (211)
CASH, BEGINNING OF PERIOD 1
---------------
CASH, END OF PERIOD $ (210)
===============
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
--------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES NOTES TO FINANCIAL STATEMENTS (Unaudited) 9
1. SIGNIFICANT ACCOUNTING POLICIES. CIGNA High Income Shares (the "Fund") is
registered under the Investment Company Act of 1940, as amended, as a
diversified, closed-end management investment company. The Fund's primary
objective is to provide the highest current income attainable consistent with
reasonable risk as determined by the Fund's investment adviser, through
investment in a professionally managed, diversified portfolio of high yield,
high risk fixed-income securities (commonly referred to as "junk bonds"). As a
secondary objective, the Fund seeks capital appreciation, but only when
consistent with its primary objective. The preparation of financial statements
in accordance with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATION - Debt securities traded in the over-the-counter market,
including listed securities whose primary markets are believed to be
over-the-counter, are valued on the basis of valuations furnished by brokers
trading in the securities or a pricing service, which determines valuations for
normal, institutional-size trading units of such securities using market
information, transactions for comparable securities and various relationships
between securities which are generally recognized by institutional traders.
Short-term investments with remaining maturities of up to and including 60 days
are valued at amortized cost, which approximates market. Short-term investments
that mature in more than 60 days are valued at current market quotations. Other
securities and assets of the Fund are appraised at fair value as determined in
good faith by, or under the authority of, the Fund's Board of Trustees.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions
are accounted for on the trade date (date the order to buy or sell is executed).
Dividend income is recorded on the ex-dividend date, and interest income is
recorded on the accrual basis. The Fund does not amortize premiums or discounts
for book purposes, except for original issue discounts which are accreted over
the life of the respective securities. Securities gains and losses are
determined on the basis of identified cost.
C. FEDERAL TAXES - It is the Fund's policy to continue to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income and capital gains to its
shareholders. Therefore, no federal income or excise taxes on realized income
have been accrued.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions are
recorded by the Fund on the ex-dividend date. Payments in excess of financial
accounting income due to differences between financial and tax accounting, to
meet the minimum distribution requirements for tax basis income, are deducted
from paid in capital when such differences are determined to be permanent.
E. CASH FLOW INFORMATION - Cash, as used in the Statement of Cash Flows, is the
amount reported in the Statement of Assets and Liabilities. The Fund issues its
shares, invests in securities, and distributes dividends from net investment
income (which are either paid in cash or reinvested at the discretion of
shareholders). These activities are reported in the Statement of Changes in Net
Assets. Information on cash payments and receipts is presented in the Statement
of Cash Flows. Accounting practices that do not affect reporting activities on a
cash basis include unrealized gain or loss on investment securities and
accretion income recognized on investment securities.
<PAGE>
________________________________________________________________________________
CIGNA HIGH INCOME SHARES NOTES TO FINANCIAL STATEMENTS (Unaudited) 10
(Continued)
2. BANK LOANS. The Fund has a revolving credit agreement with unrelated third
party lenders which will generally enable the Fund to borrow up to the lesser of
(A) $151,300,000 or (B) one-third of the Fund's Eligible Assets. The agreement
matures on May 31, 2002. Prior to maturity, principal is repayable in whole or
in part at the option of the Fund. In connection with the agreement, the Fund
has granted the lenders a first lien on all of its investment securities and
cash, which will be enforceable in an amount of up to one-third of the aggregate
value of the investment securities and cash of the Fund. Borrowings under this
agreement bear interest at a variable rate tied to one of several short-term
rates that the Fund may select from time to time or at fixed rates as may be
agreed to between the Fund and the lender. The average borrowings outstanding
during the six months ended June 30, 2000 were $112,360,059 at an average
interest rate of approximately 7.35%. As of June 30, 2000, the Fund was paying
interest at an average annual rate of 7.72% on its outstanding borrowings.
3. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES. Investment
advisory fees were paid or accrued to TimesSquare Capital Management, Inc.
("TimesSquare"), certain officers and directors of which are affiliated with the
Fund. Such advisory fees are based on an annual rate of 0.75% of the first $200
million of the Fund's average weekly total asset value and 0.5% thereafter.
For administrative services, the Fund reimburses TimesSquare for a portion of
the compensation and related expenses of the Fund's Treasurer and Secretary and
certain persons who assist in carrying out the responsibilities of those
offices. For the six months ended June 30, 2000, the Fund paid or accrued
$65,593. On February 24, 1999, the Fund received a capital contribution of
$1,615,306 from its Advisor as reimbursement for inaccurate execution of a
corporate action.
4. TRUSTEES' FEES. Trustees' fees represent remuneration paid or accrued to
Trustees who are not employees of CIGNA Corporation or any of its affiliates.
Trustees may elect to defer receipt of all or a portion of their fees, which are
invested in mutual fund shares in accordance with a deferred compensation plan.
5. PURCHASES AND SALES OF SECURITIES. Purchases and sales of securities
(excluding short-term obligations) for the six months ended June 30, 2000 were
$91,564,974 and $86,306,381, respectively.
As of June 301, 2000, the cost of securities for federal income tax purposes was
$441,006,216. At June 30, 2000, net unrealized depreciation for federal income
tax purposes aggregated $65,228,914 of which $6,535,762 related to appreciated
securities and $71,764,676 related to depreciated securities.
6. CAPITAL LOSS CARRYOVER. At December 31, 1999, the Fund had a capital loss
carryover for federal income tax purposes of $34,135,912 of which $3,704,377,
$1,753,142 and $28,678,393 expire in 2000, 2003 and 2007, respectively. On
December 31, 1999, a capital loss carryover in the amount of $35,528,808 expired
resulting in a permanent adjustment between additional paid in capital and
accumulated net realized loss. Under current tax law, capital losses realized
after October 31 may be deferred and treated as occurring on the first day of
the following year.
<PAGE>
________________________________________________________________________________
CIGNA HIGH INCOME SHARES NOTES TO FINANCIAL STATEMENTS (Unaudited) 11
(Continued)
7. FINANCIAL HIGHLIGHTS. The following table includes data, ratios and
supplemental data for a share outstanding throughout each period and other
performance information:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
6 MOS.
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
2000 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $ 5.92 $ 6.39 $ 7.88 $ 7.43 $ 7.19 $ 6.59
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (3) 0.38 0.81 0.88 0.87 0.85 0.84
Net realized and unrealized gains
(losses) (0.62) (0.46) (1.49) 0.44 0.29 0.60
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS (0.24) 0.35 (0.61) 1.31 1.14 1.44
---------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Distributions from net investment
income (0.38) (0.82) (0.88) (0.86) (0.90) (0.84)
Distributions in excess of net
investment income - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
TOTAL DISTRIBUTIONS (0.38) (0.82) (0.88) (0.86) (0.90) (0.84)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 5.30 $ 5.92 $ 6.39 $ 7.88 $ 7.43 $ 7.19
========== ========== ========== ========== ========== ==========
MARKET VALUE, END OF PERIOD $ 5.69 $ 5.38 $ 7.25 $ 8.44 $ 8.38 $ 7.88
========== ========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN:
Per share market value 13.17% (1) (16.18)% (3.35)% 11.65% 19.25% 26.24%
Per share net asset value (4) (4.27)%(1) 5.78% (8.31)% 18.58% 16.70% 22.93%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000
omitted) $ 274,806 $ 305,352 $324,289 $295,256 $ 273,500 $ 259,773
Ratio of expenses to average net
assets (includes interest expense) 3.88% (2) 3.40% 3.40% 3.28% 3.35% 3.80%
Ratio of expenses to average net
assets (excludes interest expense) 1.04% (2) 1.02% 0.97% 1.06% 1.07% 1.12%
Ratio of net investment income to
average net assets 13.20% (2) 13.05% 12.05% 11.28% 11.60% 12.03%
Portfolio turnover 22% (1) 49% 56% 74% 78% 60%
</TABLE>
(1) Not annualized.
(2) Annualized.
(3) Net investment income per share has been calculated in accordance with SEC
requirements, with the exception that end of the year accumulated
undistributed/(overdistributed) net investment income has not been adjusted
to reflect current year permanent differences between financial and tax
accounting.
(4) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes distributions were reinvested at net asset value.
These percentages do not correspond with the performance of a shareholder's
investment in the Fund based on market value since the relationship between
the market price of the stock and net asset value varied during each
period.
<PAGE>
________________________________________________________________________________
CIGNA HIGH INCOME SHARES NOTES TO FINANCIAL STATEMENTS (Unaudited) 12
(Continued)
8. QUARTERLY RESULTS (UNAUDITED). The following is a summary of quarterly
results of operations (in thousands except for per share amounts):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
INVESTMENT INCOME NET INVESTMENT INCOME ON INVESTMENTS INCR. (DECR.) IN NET ASSETS
PERIOD ENDED TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31, 1998 $ 13,024 $ 0.28 $ 10,126 $ 0.22 $ 8,199 $ 0.16 $ 108,909 $ 0.18
June 30, 1998 14,459 0.29 11,110 0.22 (12,703) (0.25) (10,327) (0.23)
September 30, 1998 14,432 0.29 11,120 0.22 (78,316) (1.55) (75,967) (1.54)
December 31, 1998 14,244 0.28 11,324 0.23 7,420 0.15 6,418 0.10
March 31, 1999 13,768 0.27 11,120 0.22 (6,608) (0.10) (2,150) (0.08)
June 30, 1999 13,592 0.27 10,928 0.21 (3,424) (0.05) (1,366) (0.05)
September 30, 1999 12,995 0.25 10,353 0.20 (18,435) (0.36) (17,043) (0.36)
December 31, 1999 11,853 0.23 9,007 0.17 2,670 0.05 1,622 0.03
March 31, 2000 12,370 0.24 9,529 0.19 (16,227) (0.31) (14,875) (0.32)
June 30, 2000 12,297 0.24 9,647 0.19 (16,251) (0.31) (15,552) (0.30)
</TABLE>
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________________
CIGNA HIGH INCOME SHARES
TRUSTEES OFFICERS
<S> <C> <C>
Thomas C. Jones
Hugh R. Beath PRESIDENT, CIGNA RETIREMENT & INVESTMENT Richard H. Forde
ADVISORY DIRECTOR SERVICES AND CHAIRMAN OF THE BOARD, CHAIRMAN OF THE BOARD
ADMEDIA CORPORATE ADVISORS, INC. TIMESSQUARE CAPITAL MANAGEMENT, INC. AND PRESIDENT
Richard H. Forde Paul J. McDonald
SENIOR MANAGING DIRECTOR SPECIAL ADVISOR TO THE BOARD OF DIRECTORS Alfred A. Bingham III
TIMESSQUARE CAPITAL MANAGEMENT, INC. FRIENDLY ICE CREAM CORPORATION VICE PRESIDENT AND TREASURER
Russell H. Jones
VICE PRESIDENT AND TREASURER Alan C. Petersen
KAMAN CORPORATION VICE PRESIDENT
Jeffrey S. Winer
VICE PRESIDENT AND SECRETARY
____________________________________________________________________________________________________________________________________
</TABLE>
CIGNA High Income Shares is a closed-end, diversified management investment
company that invests primarily in high yield fixed-income securities. The
investment adviser is TimesSquare Capital Management, Inc., 900 Cottage Grove
Road, Hartford, Connecticut 06152.
DIVIDEND RATE CHANGE
The monthly dividend of 5.75 cents per share, which the Fund declared on August
15, 2000, which is payable on September 8, 2000 to shareholders of record on
August 28, 2000, represents a new dividend rate. The new rate is a reduction
from the 6.00 cents per-share rate the Fund has paid since April 2000. Fund
Management noted that an increase in defaulted securities in recent months has
caused the Fund's net investment income to decline. Also, the cost of the Fund's
borrowing has continued to increase. Interest payable on the Fund's revolving
credit agreement is tied to short-term interest rates, which have risen faster
than income from the Fund's invested assets. As a result of this upward trend in
short-term rates, the positive income spread earned through leveraging has been
reduced.
<PAGE>
________________________________________________________________________________
CIGNA HIGH INCOME SHARES NOTES TO FINANCIAL STATEMENTS (Unaudited) 13
(Continued)
MATTERS SUBMITTED TO A VOTE OF SHAREHOLDERS
The Annual Meeting of the Shareholders of CIGNA High Income Shares (the "Trust")
was held on Monday, April 24, 2000 at 1:00 p.m., Eastern Time.
Five Trustees were elected by a vote of shareholders to serve as members of the
Board of the Trust until the next Annual Meeting of Shareholders or until the
election and qualification of their successors. Shareholders of the Trust voted
to elect the following Trustees:
FOR VOTE WITHHELD
--- -------------
Hugh R. Beath 47,379,733.632 474,140.132
Richard H. Forde 47,391,587.634 462,286.130
Russell H. Jones 47,392,172.584 461,701.180
Thomas C. Jones 47,397,311.086 456,562.678
Paul J. McDonald 47,385,927.014 467,946.750
The appointment of PricewaterhouseCoopers LLP to serve as independent
accountants for the fiscal year ending December 31, 2000 was ratified by a vote
of shareholders of the Trust as follows:
FOR AGAINST ABSTAIN
--- ------- -------
47,527,145.910 148,506.271 178,221.583
There were no broker non-votes with respect to the matters submitted to a vote
of shareholders of the Trust.
No other business was transacted at the meeting.
<PAGE>
[CIGNA TREE LOGO GRAPHIC APPEARS HERE/R/]
CIGNA High Income Shares [CIGNA TREE LEAVES GRAPHIC APPEARS HERE]
100 Front Street
Suite 300
Worcester, MA 01601
CIGNA HIGH
INCOME SHARES
-------------------- ________________________________________
BULK RATE
U.S. POSTAGE SEMIANNUAL REPORT
PAID June 30, 2000
SO. HACKENSACK, NJ
PERMIT 750
--------------------
[CIGNA TREE LOGO GRAPHIC APPEARS HERE /R/]
CIGNA
